AIG Lays out Government Exit Path, but Risks Rise
American International Group Inc laid out a plan on Thursday that sets the company on a path for an accelerated payback of taxpayer bailout money, but also increases the risk for the government.
The plan, which comes a little over two years after AIG was rescued from the brink of collapse, will see the Federal Reserve Bank of New York getting repaid in full and ending its involvement in AIG, leaving the company to deal with just the Treasury Department.
The Treasury will convert some of its AIG securities into common shares, increasing its ownership stake to 92.1 percent from nearly 80 percent. That stake will be sold off over time.
The Treasury will also effectively buy out the Fed’s interest in two large AIG units that are being sold.
The deal is expected to close by the end of the 2011 first quarter and will give taxpayers an instant paper profit of more than $10 billion.
The deal, reached after AIG’s board met with federal officials on Wednesday, shows the insurer is making progress in disentangling itself from the government and positions the company to tap the capital markets again.
But at the same time, it increases the risk for taxpayers, as AIG draws down more of the funds authorized under the $182.3 billion bailout and the government swaps preferred stock for common, which can yield a profit but also a loss if the company does not perform well.
The announcement of the plan comes as the government faces pressure to show it is extracting itself from the financial industry, which was offered more than a trillion dollars of taxpayer support in 2008.
The Troubled Asset Relief Program, set up amid the 2008 financial crisis to shore up the industry, expires on Sunday, and when Americans go to the polls for mid-term elections in November, the state of the financial system and the economy will be a big issue.
AIG Chief Executive Robert Benmosche said in an interview the deal helps the company avoid another “firestorm of negative publicity.” AIG has been on the receiving end of widespread public anger.
